Once it became obvious that cryptocurrency was not the only possible use case for blockchain, it was hailed as a disruptive technology. Its game-changing applications are more hyped than they actually are, and many believe it is overhyped.
Gaming is a different story. Experts believe the gaming industry is ready for a sea change. They predict that blockchain will first be used in the field of gaming. Blockchain could revolutionize the gaming industry and turn the tide on the monopolistic console market. It will also create a multiverse and make it more immersive and border-crossing than ever. The case of gaming will be a model for other industries looking to adopt blockchain.
Are you “Way Oversold?”
According to Tim Sloan, CEO of Wells Fargo, yes. Ajaypal Banga, CEO of Mastercard said, “Not proven”, stating that Mastercard has the third-most blockchain patents worldwide. Is there trouble in blockchain’s future if the top executives are skeptical about its potential?
Even Bitcoin, which introduced “blockchain” to the public lexicon back in 2009, is still facing regulatory issues. After reaching its peak in 2018, cryptocurrency is often seen as a gamble. Reports of Blockchain Hacking–once considered oxymoronic, impossible, and unimaginable–aren’t encouraging hesitations.
The potential of blockchain technology in other industries is not limited to cryptocurrency. Blockchain investment is growing rapidly. In 2019, there have been more than $108 million in venture capital investment in blockchain. These fears could be attributed to an old modern trend: impatience. It’s not surprising that blockchain, which promises to rejig the most crucial infrastructures, is experiencing its fair share of hiccups.
Bill Gates calls blockchain a “technological tour-de-force.” NASDAQ CEO Bob Greifeld believes it is “the largest opportunity set we could think of over the next ten years.” Blockchain’s impact will be immediate and profound, according to the Greifelds.
Blockchain could be the norm in the gaming industry for player experience, digital item transactions, and back-end infrastructure. The signal that blockchain is being adopted by gaming, how it was implemented, and when it happened, will be a beacon for other industries to watch with keen interest.
Blockchain is primarily used in gaming for liquidity.
Blockchain’s use in gaming is a simple matter of fact, as gamers are familiar with tokenization. Virtual currency was used in some of the first games. The internet-enabled games to evolve and merge with each other. In-game gold can now be bought with real-life currency (fiat). Transactions are often done outside of the game, much to the dismay of its creators.
Blockchain could create norms and fairness in in-game currency trading and link them to the real world in a sensible and consistent ways. This could be especially useful for the free-to play model, Fortnite in which the majority of gaming revenue comes from in-game purchases (e.g. skins) that are funded with digital currency.
Epic Games’ Fortnite’s success could be an indicator of blockchain’s potential success in gaming. Fortnite was the most-played game ever, with $2.4 billion earned in 2018. In 2018, 80% of global gaming revenue was made up by free-to-play games. On consoles, the number of free-to-play titles was 458% higher in 2018 than 2017.
Structure is another use. Blockchain games are limited in their scope and fall into one of two categories: hybridized or decentralized. The first model allows the game to be run entirely from a blockchain. This means that any changes made by the developer can only be approved by the community. A hybridized model allows the game to run from a central server, but its assets can be traded on a decentralized marketplace. Blockchain takes in-game assets, makes them as ownership as possible, and creates legitimacy and permanent value.
Blockchain could help the gaming industry shift its focus to in-game assets. It could eliminate fraud, create scarcity, incentivize more purchases, and make items transferable between games. Worldwide Asset eXchange (WAX), a platform that uses blockchain to track virtual items, found that 62% of gamers would rather invest in digital assets if they could be transferred between games. 84% of developers believe the same. Epic Games’ CEO Tim Sweeney hasn’t publicly ruled out blockchain or cryptocurrency–application at the level of Fortnite might be enough to tip gaming toward mass blockchain adoption.
Gaming Solutions Provided By Blockchain Technology
Blockchain provides a variety of solutions for the gaming industry.
- Granting immutable ownership to in-game objects, solving items theft due to hacking, and selling fake in-game assets.
- Players can tie assets to their games instead of gaming, which protects time and money investments made by players, regardless of developer decisions.
- Players can take control of the game, which helps to protect them from any unwanted actions by creators. It also encourages user content and extends the game’s longevity. One promising example is the virtual reality game decentraland.
- Recording sales on a blockchain can restore trust between distributors and game developers.
- Establishing a distributed distribution network for games.
- In games, creating more realistic economic systems.
- It is important to shift the focus of game development away from revenue in favor of in-game currency value.
- Incentivize players by giving them dividends and voting in development processes.
- Distributing the server via a blockchain network solves the low-revenue and high-cost problems associated with cloud gaming initiatives, such as Sony’s PlayStation Now.
- Encourage game development competition beyond the monopolistic console or game-publishing industries.
Josh Chapman, managing partner at Konvoy Ventures, stated that “Gaming doesn’t need blockchain, blockchain needs gaming.” Blockchain will not see widespread adoption or mass application unless it adds significant value to the video game ecosystem.
Chapman points to the fact that most industries are 40 years behind gaming. “There are 2.6 billion gamers and thousands of studios with digital IP and assets. Tokenization is a 40 year-old concept in video gaming. The founders of Blockchain Capital had great success trading digital assets in Second Life. The experience was used to determine the value of Bitcoin, a new digital currency. They also invested heavily in it.
Worldwide Video Game Industry Revenues by Year (Billion USD).
According to Pitchbook data, there has been a 280% increase in blockchain investments between 2017 and 2018, while investments in blockchain gaming are at an all time high. Transaction blockchain Ripple joined forces with Forte, a blockchain gaming company, to create a $100m project in 2019. Mangrove Capital, the company behind Wix and Skype fame, invested $5 million last year in esports/blockchain platform DreamTeam. A blockchain named Tron invested $100 million in its own blockchain gaming fund, Tron Arcade.
Chapman’s statement that “blockchain requires gaming” rings even more true when you look at the customer acquisition strategies used by the gaming companies. They’re not investing $100,000,000, but granting it for free to game studios. This is Ripple and Tron’s customer acquisition strategy.
Blockchain gaming investments will likely not be dissimilar to other traditional tech rivals. The game isn’t digital storage this time, but digital asset transferability. Chapman’s hypothesis is a corollary. Once blockchain can add real value to the video gaming industry, it will continue to be a crucial part of the technical fabric in this rapidly growing industry.
Jonathan Sterling, a Toptal Java Developer who specializes on fintech and cryptocurrency solutions, thinks that “Another possible outcome could be “more like Second Life experience,” which refers to the popular online virtual universe.”
To create virtual avatars, players can interact with other players, places, objects and people. Second Life players create digital assets and worlds. The game also features a proprietary virtual currency, which can be traded for real money. Its economy was worth $500 Million dollars in 2015. Second Life’s connections to blockchain are obvious. In 2018, one of its original co-creators secured a $35million Series D led by Galaxy Digital Ventures, a blockchain investment company.
Second Life calls its users as “residents”. The creators don’t consider it a game. Sterling says that it can become primary existence for many people. Blockchain is a great addition to this equation. “Maybe it took up 30% of you life, now it can take 40%. Because you can cross-tie assets, your assets can be traded for real-life stuff and vice versa. What is real life and what is the game?”
Blockchain could blur the lines between digital and real, but it could also blur the boundaries between game worlds. This is known as interoperability. Blockchain allows items to be transferred between different games or game universes. This creates a digital multiverse. Chapman says, “I could purchase a cool Mario Kart skin, then bring that skin to Counter-Strike and place it on any in-game asset of my choice.” Unrivalled cooperation among studios would be required to ensure game world fluidity. If successful, network gaming could become completely redrawn.
Blockchain gaming has many potential drawbacks, just like other uses. Sterling suggests that blockchain gaming might be driven by “regulatory arbitrage”, which means there are tax and legal consequences for the sale of in-game currency. He asks, in reference to the company that produces Starcraft and World of Warcraft: “Why doesn’t Blizzard buy gold?”
Sterling is openly skeptical of blockchain’s idealistic tone. He believes that blockchain helps to devalue gaming experiences. You can get a great item if you play a game for hundreds upon hundreds of hours each week. “It devalues the whole game for legitimate players if you can sell it for $5 on a network. It’s making the problem worse by allowing the good to trade on a secondary marketplace using Blockchain. It’s a dangerous trend that game producers are jumping onto when they should be opposed to it for the long-term health of their game.”
Sterling worked for Jagex in the early years of his career. Jagex is the creator and operator of RuneScape – the largest online, free-to-play, multiplayer online role-playing game. Sterling witnessed an in-game pyramid scheme. Networks of accounts in the game funneled in-game “gold” to one central account, which then sold the gold for real money outside the game. “Game studios are also starting to embrace this model, where they become the official gold resellers. This reduces the gaming experience but they also know that it will happen and they may as well make some money.
Another concern is that blockchain could make Fortnite’s success a matter of money. Blockchain could help solve this problem. How players obtain items could also be verified if player accounts were connected to a blockchain. Developers could limit the use of items based upon achievement. Players would still need to invest time to use them.
Why is mass adoption of blockchain still not happening for the gaming industry despite so many potential shareholders? The main reason is time. Blockchain has not reached a critical mass within the industry. The blockchain trilemma is the main problem. As the classic project management dilemma–cheap or good, fast, or both–blockchain struggles with decentralization and scalability as well as security.
The Blockchain Trilemma
These are the most important issues. Using the online tool DappRadar to view traffic for DApps—reveals a striking lack of players.
Gaming faces another problem that plagues all blockchain applications: speed. As we saw in the early days of Bitcoin and Ethereum, blockchain networks can be slow and transactions often crawl. In 2017, a blockchain game called CryptoKitties was launched. It congested the Ethereum Blockchain to the point that it became a crisis, requiring a dedicated task force.
Is There A Fork In The Chain?
The first drafts of early trilemma solutions look like early drafts. While a solution is being considered, it would require less computing power to process each transaction. However, this poses a security risk for the blockchain. The Ethereum blockchain is exploring new load reduction methods, such as splitting the network into “shards” instead of using one network for all transactions.
Companies are using blockchain theory to create new distributed ledgers. The cryptocurrency has a “block-lattice” architecture that gives each account its own unique blockchain. Nano allows users to use their own computing power to speed up transactions.
The permissionless distributed ledger IOTA offers another way to achieve similar blockchain-like results. Through its system, called the Tangle, each transaction is validated using two transactions from the pay-it forward system. The transaction is then validated with a subsequent transaction. However, the problem is that IOTA is currently centralized. However, it has been working on the plans to decentralize in the future.
It is possible that blockchain’s future may not be a blockchain at all. Future adopters may view blockchain as a failure with valuable lessons that will lead to more sophisticated and efficient distributed ledgers. It doesn’t matter what the outcome, blockchain or a blockchain-like technology won’t be able to tip the scales of gaming without first balancing it. This could be a model for other industries looking to do the same.
Continue, Save, Try Again?
Chapman believes blockchain belongs in the background. He predicts that its current hype will soon fade. “I believe that consumers won’t even know they are using blockchain in the future. Similar to how I don’t know if there are five intermediaries that I use when I wire transfer money, this is what I think. I have never heard anyone say they wish they had more transparency about the back-end of their digital assets. The problem you are trying to solve isn’t a consumer problem. This is often the beginning of a failing enterprise. If blockchain is used as a back-end-infrastructure efficiency tool, that the users never know about, that I think is the future.”
Gaming is an excellent way to test the future of blockchain. Gaming can be used as a learning tool for both blockchain and other applications.